How Emotions Can Affect Trade?

10/29/2013 By
Why the psychological aspect of trading is at the center of traders and investors and after all why there are so many studies on this topic? The answer is not a complicated one and is not unexpected as well. A trader who is engaged in the CFD market which is so risky and unsteady is forced to make quick decisions.

How Emotions Can Affect Trade?

To implement and accomplish everything properly one needs a certain presence of mind. Moreover there should be discipline, as to continue the already established trading plans and know when to book profits and losses.

Understand Your Fear

When the screen is signing red indicating that stocks are down or bad news is received about the market traders become scared. While facing up to such situations traders try to liquidate their holdings and stop taking any risks. This is a certain way to avoid losses however in this way they miss out on the gains.
The best solution out is firstly understanding the fear and quantifying it. The trader should understand what he is afraid of and why. He can identify those feelings during a trading session and identify them, as well as his instinctive reaction towards certain things. This is of course not easy and takes time and practice, however it’s necessary.

Overcome Your Greed

Greed makes investors to hang on to winning positions too long and try to get every last tick. This can be very dangerous as the trader all the time runs the risk of getting whipsawed.

It’s not easy to overcome the greed. The reason firstly lies in the truth that most people have an instinct to always do better and get a bit more. Therefore, the trader should recognize and understand this instinct and develop trading plans which are based not on an emotional whim or a harmful instinct but upon rational business decisions.

Give Importance to Trading Rules

Before getting into the emotional or psychological crunch investors should work out certain trading rules.
They can establish limits identifying entry and exit points for when they will exit. However establishing price targets is not the only rule to follow. While hearing news on specific positive or negative earnings or about macroeconomic events traders will buy or sell the asset. Or the trader might want to get out of the market if it becomes obvious that a large buyer or seller enters in it.

Traders should also set limits on the amount they win or lose within a day. Namely if they make a profit of $X they're done for the day, or similarly if they lose $Y they close the position. This rule works for traders as sometimes the best solution is to take the money and run. And like the old song of Steve Miller suggests and from which we should take lesson is that even when those two birds in the tree look better than the one in your hand you shouldn’t leave what you have and in this case you had better take the money at your hand and run.

Author Bio: As an experienced content writer Anahit appreciates the unique style and original way of writing. Each article should be expressed in such a way that you can listen to “the voice of author”. This is actually what she takes into consideration while creating content. The domains in which she is interested and therefore writes articles are Personal Finance and CFD Trading. You can find her articles on her blog and Moreover, currently she contributes to a number of other websites by doing guest blogging and would be glad to get contacted with as many bloggers as possible.
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